FDI norms – may undergo relaxation by Government.

Gloria Ganguly Date: 22nd August, 2013

To strengthen the frayed Indian currency, government has considered an extensive change in the FDI for the real estate sector which would boost fund flow.

According to the suggestion of urban development ministry, the real estate firms with less than 50% foreign ownership will be exempted from all current restrictions also including the minimum area norms for development of projects.

The revision of an internal document of the ministry says that the foreign investment up to 49% should be free from all the conditions to attract foreign capital providers which do not have long-term interest in construction assets. This will also enable real estate companies to raise foreign capital at competitive rates and reduce dependency on the already strained domestic financial institutions.

Among the proposed relaxations there are reduction in the minimum land parcel size for plotted development from10 hectares to 5 acres (2 hectares) now and permission to purchase FDI funded farmland. In case of construction development projects, the build-up area would come down to 25,000 sq meters from 50,000 square meters. The urban development ministry has also suggested that the non-resident investors in a real estate company be freely allowed to sell their shares to another non-resident investor beside reducing the minimum areas for plotted and construction development.

Mr. Ajay Dabas, of Certes Realty, acknowledged that this proposal would help in developing requisite infrastructure for retail and commercial establishments that would create huge employment opportunities which would serve to be a positive step for attracting foreign capital.

A proposal of recommendations/suggestions has been forwarded by the urban development ministry to the department of industrial policy and promotion for present and future investments. The acceptance of this proposal would ease the liquidity problem for foreign investors as there is ambiguity at present on transfer of foreign investment made in this sector by one non-resident investor to another non-resident. The government has also suggested that the foreign investors should be allowed to sell the underdeveloped plots as it will be necessary for the Indian company to provide the infrastructure and undertake development before occupancy as per the plans approved by state authorities.

The ministry reasoned that the Foreign Exchange Management Act 1999, which allows transfer shares between non-residents without any conditions should be extended to the construction development sector that would ensure greater investor confidence.

The proposal states there should not be any need for obtaining additional completion certificate for housing plots from any local body’s service agency either by the FDI investor or by the recipient Indian company as a pre-requisite for selling such plots.